Tax reform in 2013? Forget about it

This is supposed to be the year that Washington finally locks arms and tidies up the littered Tax Code.

Don’t count on it.

Story Continued Below

In a perfectly divided Washington, a mix of politics, policy and personality has made a comprehensive rewrite of the nation’s tax system — a top Republican priority — increasingly elusive in 2013, aides and lawmakers say.

The fiscal cliff has deepened distrust between the two parties. The politics have become riskier and more complicated. Time is short. And Washington has to first endure battles over the debt ceiling and scheduled spending cuts before tax reform can come under serious consideration.

“We’re starting from ground zero in doing this,” said Rep. Jim McDermott (D-Wash.), a member of the tax-writing Ways and Means Committee. “They have this object out there — this kind of mythical goal — but there’s no basis in fact of people actually working together.”

Privately, that sentiment is echoing through the corridors of power in Washington.

The latest wrinkle came Thursday. House Republicans were deeply discouraged by President Barack Obama’s nomination of Jack Lew as his new treasury secretary. Lew, according to sources, has privately expressed vocal opposition to moving toward a territorial tax system — a staple of GOP plans for corporate tax reform.

But practical reasons also make a second “Showdown at Gucci Gulch” unlikely.

The highest hurdle to a deal, perhaps, is the fact that Republicans insist that a rewrite of the Tax Code cannot generate more revenue for the federal government — while some Democrats favor a tax overhaul that raises revenue.

Indeed, the GOP is already trying to beat back efforts from Democrats to raise revenue as part of deals to raise the debt ceiling and get past sequestration.

“A balanced approach to replacing the sequester with spending cuts and revenue should accelerate tax reform, and I believe it is fully possible this year if we work on a bipartisan basis,” Michigan Rep. Sander Levin, the top Democrat on Ways and Means, told POLITICO.

Republicans say they only want to look to revenue as a tool to help lower rates in the context of fundamental tax reform.

There also will be big clashes over how low tax rates should be and whether to reduce the number of tax brackets on the books. Republicans want to push top rates down to 25 percent with just two tax brackets, while Democrats are still crowing that they were able to actually raise rates and make the tax system more progressive in the fiscal cliff deal.

But there’s more.

Tax reform would almost certainly have to come in 2013 to avoid the political pitfalls of an election year — but the year is quickly filling up. At a minimum, the next three months will be dominated by trying to solve the debt ceiling, government funding and the sequester.

Then, Obama wants to muscle gun legislation and an immigration overhaul through on Capitol Hill.